The EUR/USD currency pair settled below recent high of 1.1780, its strongest level since July 24th, in the wake of the European Central Bank’s policy decision and as concerns over a weakening US labor market outweighed inflation woes.

Annual headline consumer inflation in the US has picked up to 2.9% in August from 2.7% in July, in line with market consensus.

And, annual core CPI inflation has steadied at 3.1% in August.

Yet, initial jobless claims surged to 263,000 last week, indicating US labor market conditions softened markedly. The data followed last week’s employment report, which revealed a considerably slower than anticipated US job growth in August.

Markets are now pricing in about a 93% chance of a 25 basis point Fed rate cut next week and a 7% chance of a super-sized 50 basis point cut.

In the meantime, the ECB left all three of its benchmark interest rates without change:

– the main refinancing operations rate – at 2.15%;
– the deposit facility rate – at 2.00%;
– the marginal lending rate – at 2.40%.

The policy decision reflected updated inflation and GDP forecasts.

Euro Area’s headline inflation is forecast at 2.1% in 2025 (compared to 2% in the prior projection), at 1.7% in 2026 (compared to 1.6% in the prior projection) and at 1.9% in 2027 (compared to 2% in the prior projection).

Core inflation is projected at 2.4% in 2025, 1.9% in 2026 and at 1.8% in 2027.

And, GDP growth is projected at 1.2% in 2025 (compared to 0.9% in the prior projection), 1% in 2026 (compared to 1.1% in the prior forecast) and at 1.3% in 2027.

During the post-meeting press conference, ECB President Christine Lagarde said growth risks in the region were more balanced and the disinflationary process was over.

The major Forex pair gained 0.15% for the week.